One Of These Venture Firms Is Not Like The Other

New Enterprise Associates made the most venture capital investments in 2009 with 59 deals, according to newly released statistics from industry tracker Dow Jones VentureSource. That’s not a surprise, considering NEA is one of the largest venture firms, raising a $2.48 billion fund last fall.

Dow Jones VentureSource

In fact, the most active investor list is naturally dominated by some of the largest, most established firms like Kleiner Perkins Caufield & Byers and Draper Fisher Jurvetson who have plenty of ammo to make new deals and follow-on investments. The average age of these firms is 24 years old while the average size of their current funds is $795 million. (This doesn’t include Intel Capital, which is the corporate arm of Intel Corp., and Ben Franklin Technology Partners, a not-for-profit fund of Pennsylvania state.)

But one firm stands out on this list: First Round Capital, a child by comparison. Born in 2004 it’s the only firm on the list created in the past decade. And its current fund, a $125 million pool raised in 2006, is modest in size relative to the others – $500 million is the smallest fund of the group. Yet First Round ranks fourth on the most active investor list with 41 deals.

Looked at another way, the West Conshohocken, Pa.-based firm is also one of the most prolific investors of the bunch. Most of the deals made by these firms are follow-on investments, money used to back existing portfolio companies, rather than first-time investments. So while NEA makes the most investments, only 27% of them (through the third quarter, the latest such data available from VentureSource) are new deals. That compares with 54% done by First Round through 3Q, second to Duff Ackerman & Goodrich with 59%. Benchmark Capital was third with 42%, while Canaan was last with 12%.

The average percentage of first-time investments through the third quarter was 41%, a number that dropped rapidly last year as venture firms tended to the needs of portfolio companies amid troubling economic conditions. In 2008, first-time investments accounted for 55% of overall deals, according to VentureSource.

First Round stands out for another reason. With its roots in angel investing, the firm represents a new breed of investor that craves being small and nimble. The firm was founded by Josh Kopelman, an angel investor and entrepreneur who champions capital efficiency in an era of “bigger is better.” The firm often co-invests with wealth individual investors, typically making an initial investment of $500,000 to $600,000.

That’s a stark difference from most of the firms on this list who have fattened up over the years. Many of them, like NEA and Sequoia Capital, started out as early-stage investors before moving into heavy-duty growth investing. Will First Round follow the same path or stay true to its mission in the future?

Breaking it out by sector for 2009, First Round made the most investments in business and financial services with 13 and in consumer services with 11, according to VentureSource. NEA and North Bridge Venture Partners tied for first with 21 deals each in information technology. Kleiner Perkins and RockPort Capital Partners were the top investors in energy and utilities with six investments apiece, while Versant Venture Management made the most health care deals at 26.

Comments (5 of 8)

Just read another article that describes VCs... which suggests, I guess, that I'm really looking for PE (private equity) or something similar.

7:45 pm November 30, 2014

James Lynch wrote:

I'm looking for help starting a niche international regional airline with considerable long term growth potential. Can someone recommend a "friendly" (as in non-shark) VC company which helps transportation companies get started and mentors those who are starting them? TIA...

Editor Comment

10:16 pm January 27, 2010

Scott Austin wrote:

Thanks, David, for correcting this!

7:35 pm January 27, 2010

David S. Rose wrote:

In the interest of fact correction [grin], I am NOT the David Rose who founded Ambient Devices, the company backed in part by First Round Capital. Ambient was co-founded by David LORING Rose. I am David SEMEL Rose, and am indeed an angel investor who has co-invested alongside First Round Capital...which is why I know what an impressive group they are.

(Just to confuse things, however, one of the companies in which I co-invested with FRC *was* Ambient, for which I served briefly as non-executive board chairman subsequent to my, and FRC's, investment.)

Editor Comment

3:09 pm January 25, 2010

Scott Austin wrote:

In the interest of disclosure, the above comment is from David S. Rose, who, as an angel investor, has invested alongside First Round Capital and who founded Ambient Devices, a company backed in part by First Round Capital.

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